Legal News

Sunstein to Bring Law & Behavioral Economics to Washington

By Dan Slater

Last February, we spoke to Cass Sunstein about his then-impending move from U. of Chicago Law to Harvard. Sunstein, a 27 year Chicago veteran, was heading back east, in part, to become the director of HLS’s risk regulation program. When we asked him what that meant, he said:

This part of the 21st century is preoccupied with risk, and there’s a lot that law can do to make lives longer and healthier. . . there are risks from things like natural disasters, climate change and terrorism. And the legal system is centrally involved with trying to reduce those risks, such as making people live longer by having sensible responses to natural disasters.

Now Sunstein himself will be centrally involved with reducing those risks — as the Obama administration’s regulatory czar. Although obscure, write Jonathan Weisman and Jess Bravin in today’s WSJ, the post wields outsize power. It oversees regulations throughout the government, from the Environmental Protection Agency to the Occupational Safety and Health Administration. Obama aides have said the job will be crucial as the new administration overhauls financial-services regulations, attempts to pass universal health care and tries to forge a new approach to controlling emissions of greenhouse gases. Under President Bush the office has had a deregulatory bent.

“Law and behavioral economics,” a field Sunstein has called one of the most interesting intellectual movements of the last 30 years, is a field that seeks to shape law and policy around the way research shows people actually behave. The theory, writes the Journal, builds on earlier approaches developed at the University of Chicago that sought to harmonize regulatory law with free-market economics.

For more on behavioral economics, click here for a podcast interview that the Open Source blog did with Sunstein in August. Sunstein said we all have a little Homer Simpson in us.

And that means that we are sometimes impulsive, we sometimes follow the short-term interest rather than the long-term interest. We sometimes get confused when we’re figuring out what mortgage to select or what credit card plan to get into. . . we don’t deal with risks very well. So, before 9/11, a lot of Americans and the American government were probably too complacent about the risks of a terrorist attack. After 9/11, we were probably too frightened. So this kind of careening between complacency and fear, which you sometimes observe in the domain of climate change as well as terrorism, the behavioral people think they can explain that. So the goal is to do economics with real people, rather than to do economics with caricatures of rational man.

Full post as published by Law Blog - WSJ.com on January 08, 2009 (boomark / email).